The basic argument is this - as a business grows it finds it hard to avoid becoming more complex; and complexity ultimately makes a business less competitive.

A firm that grows successfully usually goes through a process of significant change. More layers are added to the organisational structure; the process of decision-making becomes harder and slower; managers spend increasing amount of time co-ordinating rather than thinking or innovating.

The process of increasing complexity was worst during the good times, when firms and management were faced with so much opportunity for growth that it was convenient for them to ignore (or hide) the organisational inefficiency they were creating by growing.

The article picks out organisational structures with too many layers (tall structures) as being indicative of firms that have grown too complex:

“Layer upon layer of management resulting in bottlenecks, which create a detrimental effect not only on the financial operations of the organisation but also for human resources. Of course organisations need rigorous standards and cross-checks in their systems and processes, but they also need room for discretion, innovation, creativity and empathy - that very real human element which makes the most tremendous difference in successful companies.”

The solution? Keep things simple and avoid organisational complexity at all costs.

“Coordination, collaboration and communication are the key elements of radical simplification….delegate, hire, eliminate”

This is a key evaluation point for business students, although one that too few make in exam answers. A simple starting point for ways in which a business can improve its competitiveness (and profitability) is to address complexity in the organisational structure.

Jim Riley

Before founding tutor2u with twin brother Geoff, Jim was a director at Thomson Travel Group Plc and a Corporate Finance and Strategy specialist at PwC. Jim is graduate Economist, a Fellow of the ICAEW and has a MBA (Distinction) from Bradford Management School.

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